Relevant Legislation and Rules Governing Franchise Transactions

As the franchise agreement is not regulated by law in Switzerland, there is no legal definition. Based on doctrine, the Federal Supreme Court of Switzerland circumscribed franchise agreements in a leading case concerning Yves Rocher AG in 1992 as follows: “Franchise agreements serve the sale of goods and services via independent retailers or entrepreneurs, but on the basis of a uniform sales concept. Though the individual franchisee sells the goods and services manufactured or organized by the franchisor for his own account and at his own risk, he follows the uniform sales and advertising concept provided to him by the franchisor, gets assistance, advice, and training from the franchisor, and uses his names, trademarks, facilities, or other intellectual property rights. The franchisor usually reserves the right to issue instructions and to control the business activity.” (BGE 118 II 159f.)

1.2 What laws regulate the offer and sale of franchises?

Despite the importance of franchising in Switzerland, there are no specific laws on franchise agreements in Switzerland, and none are planned for the foreseeable future. Division two of the Swiss Code of Obligations governs various agreement relationships such as purchase agreements, employment contracts, agency agreements, and commission, but not franchise or distribution agreements.

However, the fact that these agreements are not regulated in the Swiss Code of Obligations (CO) does not mean that they are not permissible. The principle of freedom of agreement, which is rooted in Swiss law, authorises contracting parties to conclude all kinds of agreements, provided that the content of the agreement does not violate laws or good morals (Art. 18 and 19 CO).

Though franchise agreements are not expressly regulated in the CO, the General Provisions of the Swiss Civil Code and the CO in conjunction with the Swiss Unfair Competition Act, the Swiss Trademark Act and the Swiss Cartel Act provide sufficient legal structure and rules for franchise agreements.

In general, the Swiss legal environment is a favourable one for franchising. This is one of the main factors one should keep in mind when choosing the law applicable to international franchise relationships. Swiss law contains far fewer restrictions than many other legal systems. Considering the diverse legal and social parameters which may form the background of the various parties to a transaction, Swiss law as a neutral system can be very helpful.

1.3 Are there any registration requirements relating to the franchise system?

No, there are no specific registration requirements relating to franchise systems in Switzerland.

1.4 Are there mandatory pre-sale disclosure obligations?

In Swiss court practice, general rules on the pre-contractual disclosure obligations arise from contract law and the Swiss Unfair Competition Act.

General contract law requires the contracting parties to act in good faith starting from the agreement negotiations. This general obligation entails:

the obligation to engage in earnest negotiations;

the obligation to be considerate;

the obligation not to deceive the negotiation partner; and

the obligation to disclose material facts that could affect the other party’s decision concerning the conclusion of the agreement.

The extent of this disclosure obligation depends on the circumstances of the individual cases, particularly on the nature of the agreement, the relationship of the contracting parties to each other, and the extent of knowledge of the two contracting parties.

The parties are under no general obligation to disclose all details, but each party is under the obligation not to provide any incorrect information and to avoid causing failures of intent of the other party. If a party notices that the other party is misinformed, this misinformation must be clarified.

1.5 Do pre-sale disclosure obligations apply to sales to sub-franchisees? Who is required to make the necessary disclosures?

There are no pre-contractual disclosure obligations applicable specifically on sales to sub-franchisees. However, the franchising relationship is usually a so-called “expert/layman” constellation. The franchisor often has a substantial knowledge lead. Therefore, the principle of good faith requires him to inform the sub-franchisee of the franchise of relevant aspects and special risks if there is reason to assume that these are not known to the sub-franchisee or franchisee.

According to the Swiss Unfair Competition Act, all deceptive conduct and other conduct violating the principle of good faith is unfair and thus illegal (Art. 2 UCA).

Furthermore, the law expressly states that anybody providing incorrect or misleading information about himself, his company, his goods or services or his business situation, is guilty of unfair conduct.

1.6 Is the format of disclosures prescribed by law or other regulation, and how often must disclosures be updated? Is there an obligation to make continuing disclosure to existing franchisees?

The format of disclosure is not prescribed by law. However, in connection with the pre-contractual disclosure obligation in the franchise agreement, the Code of Ethics of the Swiss Franchise Association deserves attention. This code requires its members to fully and precisely disclose, in writing, all information and documents relevant to the franchising relationship prior to signing the franchise agreement. This particularly includes the following:

a description of the market relevant to the franchising activity and of the products and services constituting the subject of the franchise;

the organisation of the franchisor and his business activity, especially with respect to the franchising;

a presentation of the actual franchising offer (the so-called “franchise package”);

notes concerning the franchisor’s experience with respect to the franchise activity;

a presentation of the obligations – especially the financial obligations – of the prospective franchisee;

attachments to the franchise agreement and any other agreements related to the franchisee’s activity; and

information on further sales channels of the franchisor for the products and services under the agreement.

1.7 Are there any other requirements that must be met before a franchise may be offered or sold?

No, there are no other requirements.

1.8 Is membership of any national franchise association mandatory or commercially advisable?

Membership of the Swiss Franchise Association is not mandatory; but membership may be advisable because of its networking benefits, the exchange of experience and information with regard to general franchise issues between the members, and access to the latest news from the franchise industry.

1.9 Does membership of a national franchise association impose any additional obligations on franchisors?

Besides the general membership obligations like the obligation to pay the membership fees, the membership imposes the obligation on every member to observe the code of ethics of the Swiss Franchise Association (www.franchiseverband.ch/Home/UBER-UNS/EHRENCODEX.aspx).

1.10 Is there a requirement for franchise documents or disclosure documents to be translated into the local language?

No, there is no such requirement. However, it has to be mentioned that the Swiss courts tend to support the weaker party, in this case the franchisee, if the latter argues in a dispute that it has misunderstood a contractual clause or not understood it at all because it was written in a foreign language. It is therefore advisable to procure a diligent translation of, at least, the franchise agreement and have the translation reviewed by a lawyer.

Competition Law

3.1 Provide an overview of the competition laws that apply to the offer and sale of franchises.

The Swiss Cartel Act and the Vertical Restraints Notice of the Competition Commission apply to and must be taken into consideration for all franchise agreements that affect Switzerland.

The Swiss Cartel Act is very similar to European competition law. It can be assumed that everything that is unlawful under EU Competition Law is also unlawful under the Swiss Cartel Act.

3.2 Is there a maximum permitted term for a franchise agreement?

Art. 27 of the Swiss Civil Code contains the general right to protection of the personality. This also results in the protection of an individual from excessive contractual bonding and limitations on his freedom, such as a binding contract with a term longer than 10-15 years. An agreement clause violating the personality right would be void.

According to the Vertical Restraints Notice of the Swiss Competition Commission, non-competition clauses for an indefinite term or for a term of more than five years would be impermissible.

3.3 Is there a maximum permitted term for any related product supply agreement?

Restrictions concerning the sale of other goods may be imposed upon the franchisee. However, it is to be noted that according to the said Vertical Restraints Notice, an obligation on the franchisee to purchase more than 80% of the goods or services under the agreement, as well as their substitutes, from the franchisor or company designated by the franchisor, is considered a non-competition obligation. Such would be considered as serious and thus impermissible if agreed for more than 5 years. If, however, the goods under the agreement are sold at facilities belonging to the franchisor, the obligation of the franchisee to procure more than 80% of his goods from the franchisor will not be considered a material competition restriction even if it lasts for more than 5 years.

3.4 Are there restrictions on the ability of the franchisor to impose minimum resale prices?

The imposition of minimum resale prices by the franchisor is not permitted under Swiss Competition Law.

3.5 Encroachment – are there any minimum obligations that a franchisor must observe when offering franchises in adjoining territories?

There is no statutory protection that a franchisee has against the franchisor competing within the territory allocated to the franchisee under the franchise agreement or granting a second franchisee rights to operate a franchise in that exclusive territory. However, the franchise agreement granting the franchisee exclusivity for a certain territory would serve as the basis for a claim against the franchisor competing within the territory or granting a second franchisee rights to operate the franchise in that exclusive territory.

Without an express provision in the agreement, the franchisor is under no obligation to prohibit the franchisees from engaging in active sales activities outside their own territory. Thus, although no other franchisees may be appointed in a franchisee’s contractual territory with territorial exclusivity, franchisees with other agreement territories might actively solicit customers in the protected agreement territory.

Therefore, it is important to clearly define the scope of a clause granting territorial exclusivity.

3.6 Are in-term and post-term non-compete and non-solicitation of customers covenants enforceable?

In-term restrictions concerning the sale of competing goods may be imposed upon the franchisee within the limitations of the Vertical Restraints Notice as explained above. Such in-term non-compete and non-solicitation of customers covenants would be enforceable.

For post-contractual non-competition obligations, the cited Vertical Restraints Notice of the Competition Commission generally assumes the elimination of effective competition; therefore, these are qualified as impermissible material competition restrictions. However, this does not apply if the post-contractual non-competition obligation (i) applies to goods or services that compete with the goods or services under the agreement, (ii) is limited to facilities and sites from which the franchisee has done his business during the term of the agreement, (iii) is indispensable in order to protect the expertise transferred by the franchisor to the franchisee, and (iv) is limited to a period of no more than one year after the termination of the agreement.

According to the said Notice, the restriction of the use and disclosure of non-public expertise and know-how remains possible, without any time limit.

Protecting the Brand and other Intellectual Property

Trademarks are protected by registration in the public registry with the Federal Institute of Intellectual Property in Berne or by registration with the Madrid Convention on International Trademark Registration. Registration is valid for 10 years from the date of filing. A revolving extension of 10 years upon the respective application and the payment of the renewal fee is possible. Unregistered trademarks are not protected under the Swiss Trademark Act.

4.2 Are know-how, trade secrets and other business-critical confidential information (e.g. the Operations Manual) protected by local law?

Swiss law does not define the term “know-how” but, based on practice, it generally designates knowledge and experience of a technical business, of an administrative, financial or other nature, which may be used commercially and is not protected by a patent. The owner of know-how has no overall and immediately enforceable legal exclusivity. However, to the extent that know-how is considered a business secret, the owner is protected against disclosure, espionage or the use of knowledge illegally acquired. This protection is available under the rules of the Unfair Competition Code and the Criminal Code.

4.3 Is copyright (in the Operations Manual or in proprietary software developed by the franchisor and licensed to the franchisee under the franchise agreement) protected by local law?

The copyright for intellectual property such as works of literature, fine arts and computer programmes is protected by the Swiss Copyright Act. Protection commences upon creation of the works and does not require registration.

The term of copyright protection for works of literature and fine arts is 70 years, and for computer programmes 50 years, after the death of the creator.

Copyright is protected by statute. The Copyright Act grants the creator the right to claim an injunction, to have the violation of copyright legally established, to claim damages and to have the court decision published in the event of violation of copyright. In order to achieve fast legal protection, the creator may request that the court take preventive measures in the form of a prohibition to violate copyright. An application to investigate and prosecute a violator of copyright under criminal law may also be filed.

Despite good statutory protection of copyright it is advisable that parties provide for further contractual sanctions in the event of a violation of copyright. Such sanctions may take the form of a right to dissolve the contract prematurely, a contractual penalty and a threat of claims for damages. The copyright in software programmes may also to some extent be protected by technical means by refusing the franchisee access to the source code. Whether copyright protection may be claimed for the operations manual is questionable, and will depend on whether the operations manual qualifies as an intellectual creation of literature and art with a unique character. This must be decided on a case-by-case basis.

Liability

5.1 What are the remedies that can be enforced against a franchisor for failure to comply with mandatory disclosure obligations? Is a franchisee entitled to rescind the franchise agreement and/or claim damages?

As explained, there are no mandatory disclosure obligations under Swiss law.

However, if the franchisor deceives the franchisee or failed to inform and enlighten him properly during the agreement negotiations and the franchisee was therefore substantially misinformed upon conclusion of the agreement, the franchisee may declare unilateral inapplicability of the franchise agreement and may request reimbursement of benefits already granted. Furthermore, the franchisee is entitled to damages.

Even if the negotiated agreement was not concluded, the franchisee may have claims from “liability for culpa in contrahendo”, i.e. liability for culpable violation of obligations during agreement negotiations. The damaged party may be entitled to restoration to a state as though he had never engaged in agreement negotiations and had never planned his assets in view of possible conclusion of an agreement.

5.2 In the case of sub-franchising, how is liability for disclosure non-compliance or for misrepresentation in terms of data disclosed being incomplete, inaccurate or misleading allocated between franchisor and franchisee? If the franchisor takes an indemnity from the master franchisee in the Master Franchise Agreement, are there any limitations on such an indemnity being enforceable against the master franchisee?

In the case of sub-franchising, it is the master franchisee who is the party that is directly responsible for selling the sublicences to individual unit franchisees.

The franchisee shall only have direct claims against the master franchisor if the master franchisor himself has provided incomplete or misleading information, which directly influenced the franchisee's decision to conclude the franchise agreement.

In order to protect the master franchisor against claims of the franchisee, it is advisable to provide for an obligation in the master franchise agreement on the part of the master franchisee to provide the franchisee’s complete and correct information. In order to protect the master franchisor, the master franchise agreement may specify indemnification of the master franchisor by the master franchisee against claims of the franchisee.

5.3 Can a franchisor successfully avoid liability for pre-contractual misrepresentation by including disclaimer clauses in the franchise agreement?

The franchisor may reduce its liability for pre-contractual misrepresentation in a number of ways. It is advisable to include an express contractual provision to the effect that the franchisor has given no guarantee with regard to commercial success, that the franchisee had the opportunity to gain extensive information prior to contract conclusion and that the franchisee is advised to seek expert advice prior to conclusion of the franchise agreement. In addition, the agreement should specify that only the agreement itself and the appendices to the agreement constitute parts of the contract, and that all information provided prior to contract conclusion is non-binding and does not constitute a granting of assurances.

Finally, franchisors may exclude liability to the franchisee for ordinary negligence. However, a contractual exclusion of the franchisor’s liability for intentional or grossly negligent breach of statutory or contractual obligations is not permitted and will be void.

5.4 Does the law permit class actions to be brought by a number of allegedly aggrieved claimants and, if so, are class action waiver clauses enforceable despite the expense and inconvenience of individual arbitrations?

Class actions such as those permitted in the US are at present not available under Swiss procedural law. However, there is an ongoing political debate in Switzerland about introducing the instrument of class action.

It is currently possible for a number of injured parties to conduct legal action jointly against another party.

Governing Law

6.1 Is there a requirement for franchise documents to be governed by local law? If not, is there any generally accepted norm relating to choice of governing law, if it is not local law?

Switzerland has not ratified the Rome I Convention. Therefore, the question as to which law is applicable to the franchise agreement is governed by the Swiss Federal Code on Private International Law (CPIL).

Under the CPIL, choice of law is permissible in franchise agreements. Thus, the franchise agreement can be submitted to the foreign law of the franchisor. However, certain important protective provisions of Swiss law, especially those under labour and social insurance law, may be analogously applied if this appears to be suitable and required for the particular franchise agreement under consideration.

6.2 Do the local courts provide a remedy, or will they enforce orders granted by other countries’ courts, for interlocutory relief (injunction) against a rogue franchisee to prevent damage to the brand or misuse of business-critical confidential information?

In the event of an impending or actually commited breach of contract by the franchisee, the franchisor may file an application with the local court to take preventive measures to provide interim legal protection. As a prerequisite for such preliminary injunctions, the franchisor will need to satisfy the court that the franchisee's breach of contract constitutes a risk of disadvantage to the franchisor which will not easily be remedied, that there is a case of special urgency and that the remedy applied for is proportionate.

In the event of particular urgency, the court may order the preventive measure by preliminary injunction immediately and without hearing the opposing party.

If the decision on preventive measures is made by a court in a state which is part of the Lugano Convention, the preliminary injunction will also be enforced in Switzerland.

Real Estate

7.1 Generally speaking, is there a typical length of term for a commercial property lease?

The typical length of term for a commercial property lease is 5 to 10 years in the retail sector and for restaurants. Options for a renewal of the lease agreement for the same length of term are very common.

7.2 Is the concept of an option/conditional lease assignment over the lease (under which a franchisor has the right to step into the franchisee/tenant's shoes under the lease, or direct that a third party (often a replacement franchisee) may do so upon the failure of the original tenant or the termination of the franchise agreement) understood and enforceable?

The franchisor has a justified interest in entering into the lease agreement between the franchisee and the landlord if the franchisee breaches its obligations from the franchise agreement or the lease, and in case of termination of the franchise agreement. The right of the franchisor or a third party to step into the lease agreement and/or the franchisee’s obligation to assign the lease must be agreed in the franchise agreement.

The transfer of a tenancy of business premises requires the landlord’s written authorisation. However, landlords may only refuse authorisation for good cause.

It is advisable to demand in the franchise agreement that the franchisee include a clause in the lease agreement to the effect that the landlord shall inform the franchisor in the event of a breach of the lease by the franchisee so that the franchisor is enabled to fulfil the franchisee's obligations from the lease agreement and a termination of the lease is prevented.

7.3 Are there any restrictions on non-national entities holding any interest in real estate, or being able to sub-lease property?

Property which is used for commercial purposes (e.g. office premises, shopping centres, shops, hotels, restaurants) may be purchased without a permit by foreign private individuals or companies.

The purchase of residential property by persons residing abroad is subject to permit. Foreign tenants of rented commercial property in Switzerland are entitled to sublet. However, this requires the landlord’s consent, which may only be refused for good cause.

7.4 Give a general overview of the commercial real estate market. Specifically, can a tenant reasonably expect to secure an initial rent free period when entering into a new lease (and if so, for how long, generally), or are landlords demanding "key money" (a premium for a lease of a particular location)?

The commercial real estate market in Switzerland is currently undergoing change. In particular, in the retail sector there is currently a large supply of available rental property. While the payment of “key money” was common for good shop locations and restaurants until a short time ago, this practice now applies only to absolute prime locations. For commercial premises which are difficult to let, it may be possible to agree an initial rent free period with the landlord. This applies to retail, coffee shops, takeaway restaurants and quick-service restaurants. The situation pertaining to hotels cannot be judged generally but varies depending on the type of hotel, the location and the reputation of the hotel.

Online Trading

8.1 If an online order for products or request for services is received from a potential customer located outside the franchisee's exclusive territory, can the franchise agreement impose a binding requirement for the request to be re-directed to the franchisee for the territory from which the sales request originated?

Under Swiss competition law and EU competition law, the franchisor may only prohibit a franchisee from actively selling outside of his exclusivity territory. The franchisor cannot prohibit passive sales by the franchisee, i.e. simply receiving and delivering on orders placed with the franchisee by customers outside of the franchisee’s exclusivity territory. This applies as well for online orders received from potential customers located outside the franchisee’s exclusivity territory.

Obligating a franchisee to forward online orders from customers outside the franchisee’s exclusivity territory to the franchisor in the territory where the orders originate, would thus be prohibited under antitrust law

8.2 Are there any limitations on a franchisor being able to require a former franchisee to assign local domain names to the franchisor on the termination or expiry of the franchise agreement?

There are no such limitations. The franchisor may require a former franchisee to assign local domain names to the franchisee on the termination or expiry of the franchise agreement, if this is so stipulated in the franchise agreement.

Joint Employer Risk and Vicarious Liability

10.1 Is there a risk that a franchisor may be regarded as a joint employer with the franchisee in respect of the franchisee's employees? If so, can anything be done to mitigate this risk?

The franchisee is an independent entrepreneur. He concludes all employment contracts in his own name and has sole responsibility vis-à-vis his employees and social insurance providers. The franchisor consequently has no risk of being regarded as a joint employer with the franchisee in respect of the franchisee’s employees.

10.2 Is there a risk that a franchisor may be held to be vicariously liable for the acts or omissions of a franchisee’s employees in the performance of the franchisee’s franchised business? If so, can anything be done to mitigate this risk?

If the principles of agency by estoppel and apparent authority as developed by Swiss doctrine and court practice are applied, the franchisor may be bound by legal transactions of the franchisee. Agency by estoppel exists if the franchisor does not intervene, even though he knows that the franchisee acts as his agent. In this case, court decisions assume that authority has been implicitly granted to the franchisee.

Apparent authority exists if the franchisor permits the franchisee to make third parties believe that he is authorised to represent the franchisor. In these cases, the credulous third party is protected and the franchisor is bound within the scope of the permitted demonstration of authority.

In order to mitigate this risk it should be clearly stated in the franchise agreement that the franchisee is not entitled to act on behalf or as a representative or agent of the franchisor.

Currency Controls and Taxation

11.1 Are there any restrictions (for example exchange control restrictions) on the repatriation of royalties to an overseas franchisor?

There are no such restrictions.

11.2 Are there any mandatory withholding tax requirements applicable to the payment of royalties under a trade mark licence or in respect of the transfer of technology? Can any withholding tax be avoided by structuring payments due from the franchisee to the franchisor as a management services fee rather than a royalty for the use of a trade mark or technology?

Switzerland is one of the few countries that do not impose any withholding taxes on royalty payments, franchise fees, management fees or any other payments typically made under a franchise agreement.

However, foreign investors should be aware of the 35% withholding tax applicable to the distribution of dividends of a Swiss corporation. Through an extensive network of double taxation treaties, this tax burden can be partly or wholly reduced.

11.3 Are there any requirements for financial transactions, including the payment of franchise fees and royalties, to be conducted in local currency?

There are no requirements for financial transactions to be conducted in local currency.

Commercial Agency

12.1 Is there a risk that a franchisee might be treated as the franchisor's commercial agent? If so, is there anything that can be done to help mitigate this risk?

In a dispute at court between the parties, the court, in its legal assessment of the contract, will not rely on the title of the contract but on the contractually agreed rights and obligations and the legal status of the parties. If, for example, a contract designated as a franchise agreement has the essential characteristics of an agency agreement, it will be judged to be an agency agreement regardless of its title, and the mandatory statutory provisions pertaining to agency agreements will apply.

There is a risk, in relation to third parties, that the franchisee will be treated as the franchisor’s commercial agent if the franchisor allows the franchisee to give the appearance of being an agent of the franchisor to external parties. Under these circumstances the franchisor would be put under direct obligation to the third parties by the acts of the franchisee. Cf. question 10.2, and refer to same for the options of limiting this risk.

Good Faith and Fair Dealings

13.1 Is there any overriding requirement for a franchisor to deal with a franchisee in good faith and to act fairly according to some objective test of fairness and reasonableness?

As a general principle of civil and commercial law, Art. 2 of the Swiss Civil Code rules that: “Every person must act in good faith in the exercise of his or her rights and in the performance of his or her obligations.” Due to its special importance, the Swiss Federal Court has called this principle the “guiding light of legal application” and the “limit of all exercises of rights”. The principle of good faith includes the obligation to exercise rights in an honest, trustworthy and considerate manner.

The principle of good faith is further defined in Art. 2 of the Swiss Unfair Competition Act. This reads: “Any behaviour or business practice that is deceptive or that in any other way infringes the principle of good faith and which affects the relationship between competitors or between suppliers and customers, is unfair and illegal.”

Ongoing Relationship Issues

14.1 Are there any specific laws regulating the relationship between franchisor and franchisee once the franchise agreement has been entered into?

There are no specific laws regulating the relationship between franchisor and franchisee once the franchise agreement has been entered into. The contractual relationship between franchisor and franchisee is subject to all generally applicable laws.

Franchise Renewal

15.1 What disclosure obligations apply in relation to a renewal of an existing franchise at the end of the franchise agreement term?

The same principles as those described in question 1.4 above apply to the renewal of an existing franchise agreement.

15.2 Is there any overriding right for a franchisee to be automatically entitled to a renewal or extension of the franchise agreement at the end of the initial term irrespective of the wishes of the franchisor not to renew or extend?

There is no statutory right of the franchisee to automatic extension or renewal of the franchise agreement at the end of the initial or any subsequent term.

15.3 Is a franchisee that is refused a renewal or extension of its franchise agreement entitled to any compensation or damages as a result of the non-renewal or refusal to extend?

As a consequence of the answer to question 15.2, there is no right of the franchisee to any compensation or damages as a result of the non-renewal of, or refusal to extend, its franchise agreement.

Franchise Migration

16.1 Is a franchisor entitled to impose restrictions on a franchisee's freedom to sell, transfer, assign or otherwise dispose of the franchised business?

The franchisee is generally entitled to assign its rights from the franchise relationship to third parties. The assignment of obligations of the franchisee to a third party always requires the consent of the franchisor. Where the assignment of rights is also to be subject to the consent of the franchisor, this must be agreed in the franchise agreement.

A transfer of the entire franchise agreement with all rights and obligations therefore requires, in any case, the consent of the franchisor.

However, where the franchisee transfers the franchised business as a whole in the form of a share deal or in the case of a merger, this does not require the consent of the franchisor unless specifically provided otherwise in the franchise agreement. However, there are a number of options for protecting the franchisor from a transfer of the franchise business by the franchisee. Possibilities include a “change of control” clause enabling the franchisor to terminate the franchise agreement in the event of a transfer of the business to a third party. Another option is the granting of a right of pre-emption to the franchisor in the event of a sale or merger of the franchised business by the franchisee. The franchise agreement also often stipulates specific conditions which must be met in order for the franchisor to give its consent to a transfer of the franchised business.

16.2 If a franchisee is in breach and the franchise agreement is terminated by the franchisor, will a "step-in" right in the franchise agreement (whereby the franchisor may take over the ownership and management of the former franchisee's franchised business) be recognised by local law, and are there any registration requirements or other formalities that must be complied with to ensure that such a right will be enforceable?

Swiss law permits the inclusion in the franchise agreement of a step-in right to the franchise agreement of the franchisor or a third party nominated by the franchisor in the event of contract termination. The extent to which contracts with third parties will be affected by this right will need to be established on a case-by-case basis. On lease agreements, cf. question 7.2 above.

If the franchisee manages the franchised business with a corporation there is also the option of granting the franchisor, in the event of contract termination, a purchase option to buy the shares of the corporation on predetermined terms.

Other solutions are possible, and must be considered depending on the type of business and on a case-by-case basis.

Registration requirements or other formalities that must be complied with do not exist.

16.3 If the franchise agreement contains a power of attorney in favour of the franchisor under which it may complete all necessary formalities required to complete a franchise migration under pre-emption or "step-in" rights, will such a power of attorney be recognised by the courts in the country and be treated as valid? Are there any registration or other formalities that must be complied with to ensure that such a power of attorney will be valid and effective?

Powers of attorney are easily granted under Swiss law. The power of attorney does not need to be in writing and may include the exercise of extensive rights, provided they do not constitute rights which cannot be transferred. Such rights are not affected in connection with franchise migration under preemption or step-in rights.

Nevertheless, a power of attorney granted to the franchisor in the franchise agreement would not be an appropriate instrument, as the power of attorney may be withdrawn by the franchisee as grantor at any time.